RSA Surges Most in Two Decades as Zurich Weighs Takeover Bid

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RSA Headquarters In London
A takeover would cap a tumultuous two-year period for RSA Insurance Group Plc. Photographer: Simon Dawson/Bloomberg

RSA Insurance Group Plc surged by the most since the deal that created it almost two decades ago after Zurich Insurance Group said it was considering a bid, stirring speculation the British company could attract another suitor.

RSA may fetch about 563 pence a share, or about 5.7 billion pounds ($8.8 billion), according to Panmure Gordon & Co. analysts. The stock jumped 18 percent to 518.5 pence in London, the biggest gain since Sun Alliance Group Plc and Royal Insurance Holdings Plc’s merger in 1996.

Allianz SE, Europe’s biggest insurer, and France’s Axa SA may also bid for RSA, whose shares have trailed peers in the past year, analysts said.

“RSA is now effectively in play,” said Barrie Cornes, an analyst at Panmure with a hold rating on the insurer. “Others will now place the slide rule over the company that has for many many years been a perennial takeover story.”

The talks are a sign a revival in mergers among European insurers is beginning to gain momentum. Dealmaking has been crimped in recent years amid a cloud of uncertainty about how much capital insurers need to hold under the latest round of rules known as Solvency II.

A deal would be Zurich’s biggest since 2000 and let Chief Executive Officer Martin Senn, 58, expand in the U.K. and Latin America as well as access RSA’s profitable Scandinavian and Canadian units. Zurich reiterated in May that it would redeploy $3 billion of surplus capital by the end of 2016.

28-Day Deadline

Zurich fell 1.8 percent to 291 francs in Swiss trading for a market value of 43.5 billion francs ($45.1 billion). The stock has fallen almost 7 percent this year.

Zurich said in a statement Tuesday its deliberations don’t “amount to a firm intention” to make an offer. Under the U.K. takeover rules, the company has 28 days to make a formal offer or walk away for six months unless RSA consents to an extension.

RSA said in response it hasn’t held talks with, or received a proposal from, Zurich and advised shareholders to take no action. Both insurers are set to report earnings Aug. 6.

Daniel Bischof, an analyst at Baader Helvea in Zurich said a competing bid from others including both Allianz and Axa couldn’t “quite be written off.” Spokesmen at Axa and Allianz declined to comment.

For RSA, a takeover would cap a tumultuous two-year period for the insurer which has included an accounting scandal in Ireland in 2013, Simon Lee’s departure as CEO, a stock sale and a spate of asset disposals to shore up the balance sheet. Stephen Hester, the former CEO of Royal Bank of Scotland Group Plc, took the reins at RSA last year.

Worst Performer

Before today, RSA’s stock was down 4.6 percent over the past 12 months, the worst performer in the nine-member FTSE 350 Nonlife Insurance Index, which gained 15 percent in the period.

The company, which traces its roots to the Sun Fire Office in 1710 and insured the home of Captain James Cook, focuses on household and auto as well as commercial property and liability cover. The insurer posted a pretax profit of 275 million pounds in 2014, compared with a loss the previous year.

A takeover of RSA would be the biggest acquisition of a U.K. insurer since Aviva Plc completed its 5.4 billion-pound purchase of Friends Life Group Ltd. in April.

RSA’s 3.1 billion-pound pension fund deficit may yet present a hurdle to a deal which has deterred some insurers from making formal offers in the past, according to people with knowledge of those discussions who asked not to be identified because they weren’t authorized to speak publicly.

“The transaction could still make sense,” said Sami Taipalus, a London-based analyst at Berenberg. “With a group as big as Zurich the pension liabilities don’t really matter.”

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